NEW YORK JOINS RANKS OF COURTS HOLDING ERISA NOT A BAR TO MEDICAL MALPRACTICE SUITS AGAINST...

Nealy v. US Healthcare, 93 N.Y.2d 209, 711 N.E.2d 621, 689 N.Y.S. 2d 406 (New York Court of Appeals, Mar. 25, 1999).

In a case of the sort that has been raised in Congress as grounds for passage of legislation to protect HMO patient's rights, New York's highest court has ruled that doctors working for an HMO are not immune from malpractice suits based on state law even where the doctor's services are rendered for an HMO operating pursuant to an employer-provided plant subject to the Employee Retirement Income Security Act (ERISA). The federal ERISA statute contains a broad preemption clause (see the discussion of the UNUM v. Ward case above) that makes state law inapplicable to ERISA-sponsored employee benefit plans except to the extent that the state law is one regulating insurance. Although a medical malpractice action is not insurance regulation, the New York Court of Appeals still found no bar to the litigation. The plaintiff's suit, which arose out of alleged nontreatment or inferior treatment, was against the physician and not against the insurer or plan administrator. Consequently, even if ERISA's pre-emption clause operated to prevent state law-based suits directly against the an ERISA plan, the preemption clause did not apply to bar suits against agents of the plan, particularly when the doctor/agent was being sued for medical malpractice rather than for implementation of the plan.

Plaintiff alleged that her husband sought treatment for coronary artery disease from Dr. Ralph Yung and that as a result of Dr. Yung's failure to provide adequate treatment, including prompt examination by a specialist, her husband died of a massive myocardial infarction nearly six weeks after first approaching Dr. Yung. The decedent patient had a history of heart disease and had previously been treated with angioplasty by a specialist when the decedent had been covered by a Blue Cross plan prior to his switch to an employer-provided HMO. The allegations of negligence against Dr. Yung at least touched upon delays induced by Dr. Yung's following of HMO-mandated procedures governing referral to specialists and use of physicians that were not part of the Aetna/U.S. Healthcare HMO which had designed Dr. Yung as the decedent's primary physician. Notwithstanding this brooding omnipresence of the issue of the HMO's possible negative effect on Dr. Yung's delivery of medical services, the Court characterized the actio n as one sounding in medical malpractice rather than a suit against the HMO for breach of contract, fraud, or bad faith.

Here, plaintiff alleges that Dr. Yung, as a direct provider of medical services, violated the duties and standard of care owed to his patient by improperly assessing the nature and extent of his condition and by failing to take reasonable steps to provide for his timely treatment by a specialist. Plaintiff does not allege that Dr. Yung is responsible for delay caused by US Healthcare's decision-making process with respect to coverage or benefits. Her claim against Dr. Yung is that he failed to take timely action to treat her husband.

See 93 N.Y.2d at 219-20, 711 N.E.2d at 625.

In rendering its decision, which predated by a month the UNUM v. Ward case in the U.S. Supreme Court, the New York Court took a similar approach to interpreting ERISA and arguably focused even more on the purpose of the statute rather than the literal text of the law, which preempts state law that "relates to" an employee benefit plan. Rather, the New York Court read Supreme Court precedent (accurately in light of the Court's subsequent approach and holding in Ward) as moving away from textual literalism (the words "relate to" can be stretched to a near-infinite point) to "a more pragmatic approach" since the Court's decision in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S.Ct. 1671, 131 L.Ed. 2d 695 (1995). Blue Cross v. Travelers found no ERISA preemption of New York's law that exempted Blue Cross and Blue Shield from a surcharge on hospital bills paid by other employee benefit plans to fund state-sponsored insurance coverage goals. As the Nealy Court interpreted that holding, the "Supreme Court...held that the indirect economic influence of the surcharges did not interfere with the congressional goal of uniform standards of plan administration."

Rather, the Nealy Court interpreted ERISA's preemption provision as aiming to facilitate the development of a uniform national law governing employee benefit plans and a standard system to guide the processing of claims and disbursement of benefits rather than to supplant all state law touching upon benefit plans or insurance.

[C]onsidering the objectives of the ERISA statute, it is clear that Congress did not intend to preempt claims, such as those now before us. Plaintiff's claims do not bind an employee plan to any particular choice of benefits, do not dictate the administration of such a plan and do not interfere with a uniform administrative scheme.... To the contrary, plaintiff's claims are consistent with ERISA's "principal object": the protection of plan participants and beneficiaries."

See 93 N.Y.2d at 220-21, 711 N.E.2d at 625-26.

The issue in Nealy is similar to but distinct from the issue in Ward. In Ward, the insurer operating pursuant to an employee benefit plan argued for preemption because of its status but the Supreme Court rejected the argument because state law invoked by the claimant was state law directed at the governing of insurer-insured relations. Such "laws regulating insurance" are a specific exception to ERISA preemption. By contrast, the Nealy Court found that the claim itself was not a claim against the ERISA plan but only a claim against a doctor operating in the penumbra of the plan. As a result, the non-insurance nature of the claim did not make it subject to preemption.

The Nealy approach will not necessarily control in similar cases in other jurisdictions and probably will eventually be the subject of more federal court resolution, perhaps even U.S. Supreme Court review. For example, the United States Court of Appeals for the First Circuit (hearing appeals from federal trial courts in Massachusetts, Rhode Island, Vermont, New Hampshire, and Maine, regarded a similar claim against a doctor for inadequate treatment as being a suit against the insurer and subject to ERISA because "the conduct was indisputably part of the process used to assess a participant's claim for a benefit payment under the plan". According to the First Circuit, "Any state-law-based attack on this conduct would amount to an 'alternative enforcement mechanism' to ERISA's civil enforcement provisions ... and [is] therefore completely preempted." See Danca v. Private Health Care Systems, Inc., 1999 U.S. App. LEXIS 18043, Appeal No. 98-1754 (1st Cir. Aug. 2, 1999). Although the Danca and Nealy cases could be distinguished on their facts, there is an clear divergence of approach between the two cases, one that may eventually require resolution by the U.S. Supreme Court.

The Nealy court also alluded to the interesting but unsettled issue of "whether the US Healthcare HMO was even a "plan" within the meaning of the ERISA preemption provision." See 93 N.Y.2d at 220 n. 3, 711 N.E.2d at 625 n. 3. Rather, the HMO might more properly be characterized as simply a service provider to an ERISA plan rather than the plan itself. In an amicus brief supporting Plaintiff Nealy, the U.S. Secretary of Labor, who is charged with interpreting and enforcing the provisions of ERISA, took this position. However, many courts adjudicating claims against an employer-provided HMO coverage have implicitly assumed or concluded that the HMO could raise the ERISA preemption defense. The UNUM v. Ward case did not address this question but arguably also made this assumption or reached this implicit conclusion since the Ward Court could have invoked the lack of UNUM's status as an ERISA "plan" as a basis for rejecting UNUM's defense to Ward's late notice claim but did not do so. However, it is not clear tha t the "definition of plan" argument against preemption was developed before the Ward Court or consciously considered by the Court even if the Court chose not to discuss the question in its opinion.

Although different facets of ERISA preemption law, Nealy and Ward read together demonstrate the recent judicial focus on the purpose of ERISA rather than the breadth of the preemptive language. Increasingly, insurer defenses based on ERISA preemption must be consistent with the public policy goals of ERISA in order to apply to prevent claims against insurers or others providing benefits or treatment pursuant to an employer-provided health plan.